US EARLY MORNING: Global equities are falling on Tuesday amid risk-off trade; Fed Chair Powell ahead

RISK-OFF: Global equity markets are seeing downside amid risk-off trading conditions. US equity futures are trading lower (YM -0.8%, RTY -1.0%, ES -1.3%, NQ -1.9%) led by the tech-heavy Nasdaq-100, where social media and advertising names are being pressured after Snap Inc's (SNAP) profit warning on guidance it issued only a month ago; SNAP cited a macroeconomic environment that has deteriorated further and faster than it anticipated, and it will be slowing hiring. Analysts were surprised by the announcement given that SNAP indicated in April that its guidance might be on the conservative side. RBC's analysts said the SNAP update will sound the alarms on the deteriorating macro's evolving effects on digital advertising, but while the read will be negative for the space, RBC questions how much of this is SNAP-specific vs the broader industry; "given the company's implied May/June growth at low-single digits/mid-single digits, risk/reward remains challenging on SNAP even with the sell-off, particularly in the event that other ad players aren't hurt as badly - which we think is possible," the bank wrote.

SOUR APAC, EUROPE TRADE: Meanwhile, the overnight APAC session was soured by the negative handover from Wall Street, while traders were also contending with growth fears as UBS and JPMorgan lowered their outlook for Chinese GDP this year as April's activity data was hamstrung by China's zero COVID policies. In Europe, ECB President Lagarde once again reiterates that interest rates could exit negative territory in Q3 (she is due to speak again later today). Additionally, the European day has seen the release of PMI data, which have generally been mixed; the German report said that the outlook remained subdued, while historically high prices continue, while alluding to inflationary pressures across the economy; the French report mentioned clients being dissuaded from placing orders due to higher prices charged, while other customers chose to adopt a wait-and-see approach amid geopolitical uncertainty and supply-chain issues, though acknowledged that this was offset by stronger demand within the service sector. The Eurozone report saw the manufacturing, services, and composite indices all disappoint expectations; prices charged rose at the second-highest rate; the data is consistent with "solid" quarterly growth of 0.6% in Q2, S&P Global said, but it remains to be seen how long the service sector rebound can persist for, especially given the rising cost of living, while manufacturing weakness remains a concern and is showing signs of spilling over to some parts of the services economy. In terms of the policy outlook, S&P said that such high price pressures, accompanied by resilient GDP growth, will tilt policymakers at the ECB towards a more hawkish stance.

US DAY AHEAD: In the US day, we will get the release of S&P’s flash PMI data for May, which are expected to pare back (manufacturing seen at 57.5 from 59.2, while services is seen at 55.2 from 55.6), which will help form expectations ahead of the release of the more influential ISM surveys at the beginning of June. However, the main event of the day will be remarks due from Fed Chair boss Powell, who will deliver pre-recorded remarks at the NCAIED. We expect Powell will reiterate the Committee’s primary focus is on inflation, and he will continue to back 50bps rate rises at the June and July meetings (his comments from last week can be recapped here). One area to watch is if Powell ­– like his colleagues Bostic, Bullard, George – begins introducing some dovish padding around his comments that suggests that the Fed could pause hikes when they have risen to neutral. Our full day ahead calendar can be accessed here.

KEY US EQUITY LEVELS (per Credit Suisse):

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  SPX: 3663, 3700/3694, 3730/23, 3800, 3815/10, 3943/46, 3977, 4000/02, 4052, 4090/91.


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  NDX: 11356, 11492, 11624, 11692, 11768, 12045, 12196, 12337/90, 12510, 12573.


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  RUT: 1652/42, 1670, 1705/1697, 1713, 1739/31, 1797, 1807, 1839/41, 1854, 1868/80.

COMMUNICATIONS:

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  Snap Inc. (SNAP), Social Media Names, Advertising Names - Shares of Snap tumbled after hours by over 30%. The social media company said that the macroeconomic environment has deteriorated further and faster than anticipated since its last guidance issuance (on April 21st, amid its disappointing earnings report, it forecast +20-25% revenue growth), now believes it will report revenue and adjusted EBITDA below low end of Q2 guidance range. Snap will also slow hiring, and pledged to improve productivity from its existing team members over the coming months. In after hours trading, the Snap announcement weighed on Meta Platforms (FB) and Twitter (TWTR), which declined by 7% and 3.1% respectively, while advertising giant Alphabet (GOOG) also slipped by 3.2%.


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  Activision Blizzard, Inc. (ATVI) - A union at Activision subsidiary Raven Software, the Game Workers Alliance (GWA), won its union vote by a margin of 19-3. The election makes the GWA the first union for Activision Blizzard, and only the second formal union in US video game industry, The Verge reported.


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  Zoom Video Communications, Inc. (ZM) - Rose 4.7% after hours after Q1 earnings topped expectations and it gave solid guidance. Q1 adj. EPS USD 1.03 (exp. 0.87), Q1 revenue USD 1.07bln (exp. 1.07bln). Sees Q2 adj. EPS between USD 0.90-0.92 (exp. 0.84), and sees Q2 revenue at USD 1.12bln (exp. 1.11bln). Lifts FY EPS outlook to USD 3.70-3.77 from 3.45-3.51 (exp. 3.49), and sees FY revenue between USD 4.53bln-4.55bln (exp. 4.54bln).


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  Deutsche Telekom (DTEGY), T-Mobile (TMUS) - T-Mobile does not expect to raise prices.

TECH:

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  Broadcom Inc. (AVGO), VMware, Inc. (VMW) - Following reports Monday that Broadcom was in talks to buy VMware, WSJ reported that the two were discussing a USD 140/shr all-cash deal, adding that the price was not yet set and could still change. The deal would be a total of around USD 60bln, making it one of the biggest takeover deals of the year.


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  Samsung Electronics Co., Ltd. (SMSN) - Samsung will raise spending on chips and biotech by +30% to around USD 360bln over 5-years to shore up businesses from chips to drugs, Bloomberg said. It also announced that it will create 80k jobs through 2026, mostly in semiconductors and biopharmaceuticals.

HEALTHCARE:

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  DexCom, Inc. (DXCM), Insulet Corporation (PODD) - DXCM down 9% after hours, PODD up 15%; Bloomberg reported that Dexcom is in talks to acquire Insulet, potentially creating a giant in diabetes devices. Talks are ongoing, an agreement could be reached in the coming weeks. Bloomberg didn't cite a specific price, but noted Insulet had market cap of about USD 14bln, while Dexcom's market cap was around USD 32bln.

INDUSTRIALS:

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  Tesla, Inc. (TSLA) - Lower by 2.6% in after hours. Said it could take until later this week to restore full production in China after quarantining thousands of workers. On Monday, reports had suggested that Tesla was planning to return to pre-COVID output at its Shanghai facility by Tuesday, a day later than its initial recovery plan.


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  Toyota Motor Corporation (TM) - Is suspending production further. Said "the shortage of semiconductors, spread of Covid-19 and other factors are making it difficult to look ahead," adding that "due to parts supply shortages caused by the lockdown in Shanghai, we have decided to suspend operations in May and in June." Production will be slowed at five Japanese plants, where around 250k units are produced monthly. TM is aiming to manufacture 850k units/month through August, and left its FY output target of 9.7mln units unchanged.


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  Stellantis (STLA), Samsung SDI (SSDIY) - The two are to announce a JV to build a battery plant in Indiana, Reuters said.


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  Air France-KLM (AFLYY) - Starts EUR 2.3bln rights issue. Will have a subscription parity of three new shares per one share, with subscription price of EUR 1.17/shr (vs EUR 4.3470 close on Monday), equivalent to EUR 1.4490 adjusted for subscription parity.


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  Deutsche Lufthansa (DLAKY) - Confirmed it is to make a bid for ITA airways.


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  Safran (SAFRY) - Said to be facing industrial delays of six-to-eight weeks amid supply chain problems, according to Reuters.


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  Nordson Corporation (NDSN) - Q2 adj. EPS USD 2.43 (exp. 2.29), Q2 revenue USD 635mln (exp. 644.9mln). Sees Q3 adj. EPS and revenue comparable to prior year results. Raised its FY22 adj. EPS growth outlook to +18-21% (prev. +14-18%), though narrowed the range of its FY22 revenue growth view to 8-9% (prev. 7-10%).


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  HEICO Corporation (HEI) - Q2 EPS 0.62 (exp. 0.61), Q2 revenue USD 538.8mln (exp. 530.2mln).

MATERIALS:

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  Albemarle Corporation (ALB) - Rose 2.7% after hours as it boosted FY guidance. Exec noted that in the last year it has made significant progress in renegotiating more variable-priced contracts with its lithium customers. FY22 adj. EPS now seen between USD 12.30-15.00 (exp. 10.88, prev. 9.25-12.25), and raised its FY22 revenue view to USD 5.8-6.2bln (exp. 5.44bln, prev. 5.2-5.6bln). Also raised its view for FY22 net cash from operations, now sees USD 550-850mln (prev. 500-800mln); raised FY22 adj. EBITDA outlook to USD 2.2-2.5bln (prev. 1.7-2bln), while its adj. EBITDA margin view was lifted to 38-40% (prev. 33-36%).

ENERGY:

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  Exxon Mobil Corporation (XOM) - Proxy adviser PIRC urged Exxon shareholders to vote against the re-election of five directors, including CEO and Chair Darren Woods, at Wednesday's AGM, according to Reuters. PIRC said Woods should be held accountable for assuring the company's strategy to meet Paris-aligned goals to reduce carbon emissions, and his serving as both Chair and CEO represented a concentration of power which could potentially be detrimental to the board's balance.


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  Saipem (SAPMY), Shell (SHEL), Petrobras (PBR) - Saipem wins contract from Shell and Petrobras for the use of its subsea drone.


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  Siemens Energy (SMNEY) - Gas and Power segment will be split into three business areas to increase transparency. Will eliminate around 30% of management positions to flatten hierarchies, although no layoffs are planned.

CONSUMER CYCLICAL:

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  Advance Auto Parts, Inc. (AAP) - Slipped 3.7% after hours. Q1 adj. EPS USD 3.57 (exp. 3.60), Q1 revenue USD 3.37bln (exp. 3.4bln). Q1 SSS +0.6%, +25.3% on a two-year stack basis. CEO said it started 2022 with strong mid-single digit comp growth through the first ten weeks of our 16-week quarter; during the final six weeks, it experienced comp declines driven by its DIY omnichannel business, primarily a result of headwinds from the expected lap of the DIY sales boost from the 2021 stimulus as well as a slower start to the spring selling season due to cooler temperatures and higher precipitation. CEO said these headwinds have subsided in the first four weeks of Q2 with comp sales growth within its full-year guidance range. Raised its FY22 EPS outlook to USD 13.30-13.85 (exp. 13.75bln, prev. 13.20-13.75), while reiterating its FY22 revenue view between USD 11.2-11.5bln (exp. 11.4bln), and reiterated its FY22 SSS view of +1-3%.


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  Marriott International, Inc. (MAR) - CEO gave cautious remarks on the economic outlook, according to the WSJ; said "it will be challenging to avoid a recession," adding that "it certainly seems we're headed in that direction."

FINANCIALS:

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  FTSE 100 - According to AJ Bell, the FTSE 100 reshuffle indicative results due after the close on May 24th could see Centrica (CPYYY), ConvaTec (CNVVY) and Johnson Matthey (JMPLY) enter the index, while ITV (ITVPY) and Royal Mail (ROYMY) could be demoted.


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  Barclays (BCS) - Exec said it expects to begin GBP 1bln share buyback programme this week at GBP 0.25/shr. Aim is to reduce share capital.


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  Societe Generale (GLE.PA) - To name the bank's new CEO by autumn, Il Sol 24 reported.

24 May 2022 - 09:34- EquitiesData- Source: Newsquawk